tv [untitled] CSPAN June 28, 2009 3:30pm-4:00pm EDT
>> do you know for sure? >> i will get back to you but it's my belief we did. >> we need to know that. isn't it true there was a ,@ h-level concern that the fed s)@ @ @ @ @ @ @ @ @ @ @ @ @ >> i am concerned if we to quickly move to a strategy, particularly if management is the source of the problem and they don't have a good grasp of the extent of the problem inappropriate strategies to resolve but, i'm instructed to look at the example of royal bank of scotland, uk replacing our management. the bankers maintain operations without significant instructions i would not want to discard this option prematurely, that is a quote. german bernanke, ken lewis came to you with a store the fed didn't believe.
you were getting information from your staff and pierced considerable concessions should be required at bank of america because of concern of the quality of top management, and yet you decide to give the eight away without any meaningful changes to bank of america's corporate management or compensation policies. how do you explain that, chairman? >> congressman, the process isn't a one time thing, it's an ongoing process and in the ongoing supervisory process we have made demand of the bank of america in terms of their -- >> so you give the money first and then start supervising? >> well, we have the ability to insist on these changes at any point. >> thank you mr. chairman. >> thank you. i now yield to the gentleman from indiana, mr. burton. >> is mr. lewis lobbying? >> with respect to what? >> i said is mr. lewis lobbying when he tells the committee you put pressure on him along with
mr. paulson? >> all i know is i never said i would replace the board of management if he invoked mac. >> what did you say? sometimes there's an implication without a direct order. >> i expressed concerns about the effect of invoking the mac both on the financial system and on the bank of america itself. i expressed those concerns which is appropriate but always it was his decision whether to know the take the decision. >> did mr. paul sing lawyer when he told mr. cuomo that he was acting under your suggestions or orders to tell them that the board would be fired if they didn't comply? >> i believe he's modified that statement. i did not tell him -- i did not tell mr. paulson -- >> what did you tell him? >> i didn't tell him anything like that. >> using you didn't tell him anything like that. what did you tell him? >> mr. paulson and i had conversations given our common concerns about the financial system. all i can say is i sure i never
told him to convey such a message to ken lewis. >> mr. paulson says in a letter from new york attorney genera andrew cuomo to congress hear reports paulson told him paulson made the threat at the request of bernanke. that isn't correct? >> nope. >> did you say t.a.r.p. said he modified the state. how did he modify? we don't have any information. >> he issued a statement to the fact he did not receive the information that he made inferences but as far as i know he modified a statement on that particular issue. >> how about mr. blacker, is he
lying in? >> he summarizing a long conversation. i don't recall exactly what was said. >> have a long talk with an act, they think that the mac is -- if they play the card and need assistance management is gone. you didn't say anything like that? >> i don't know if i did or not. >> one of the things -- i was chairman for six years and we did a lot of investigating. one thing i learned is that in order to keep people from purging themselves they can't remember anything. are you sure you can't remember? >> i'm sure i can't remember. but i think it's important to note that whatever conversation i had with the federal reserve official that i did not in subsequent conversations with mr. lewis did not make that threat. >> why did you keep the sec in the dark? >> i did not keep the sec in the dark. we were working carefully and closely with other regulatory agencies. the agency's most relevant for the bank of america discussion
with those involved in regulating the bank of america and in the transaction that would have been the treasury, federal deposit insurance corporation and office to control currency who were well informed. >> according to the new york general mr. cuomo said mr. paulson kept the sec out of the loop about efforts to push the bank of america merger with merrill lynch it seems to be backed up by the following exchange between your general counsel, scott alvernia as, and a new york federal official. the new york fed official is asked have we conveyed anything to the sec regarding the bank of america situation? the know something's up. how much if anything has been shared with the sec? mr. alvarez said i did discuss with sec. bank of america can plant someone did talk to the sec with a result the sec called late last week to say that they heard the bank of america was negotiating a deal with the u.s. government and to ask bank of america to explain the unexpectedly high losses at
merrill lynch. you didn't direct any of those? >> i did not. >> does mr. elder is work for you? >> he does. >> he did this on his own? >> again, i would emphasize the issues at hand didn't directly involve the sec. the involved -- >> are you his boss? >> i'm sorry? >> are you his boss, mr. alvarez? >> ibm. >> what he do something like this, make this kind of statement that could cause these kind of problems without your authority? >> i didn't have any knowledge of this particular exchange, and again, the rationale as understand now having discussed with him is the agencies that were relevant to our transaction were the fdic, occ and treasury. that's the ones we kept closest and communication. [inaudible] >> the gentleman's time is
expired. mr. foster from illinois? >> thank you for empirical letcher and bernanke. i appreciate -- the microphone, is this working? >> see if your microphone is on. >> is this working? i will speak loudly. for clarity at any point in these negotiations did you or anyone you know what point out to mr. lewis the government agencies have the power to remove him and or the bank of america board? >> i did not. >> okay. now, without any specific reference to the case at hand, you believe there are circumstances in which the ceo of a system ackley important firm might be expected to have his shareholders take a bullet to protect the overall health of the economy in a crisis situation?
>> no. that's not -- that's not appropriate under supervisory practice and we have not done that. >> okay. so do you believe that there is any need for any additional legal clarity about the duties of the ceo to the shareholders to the regulators and to the overall economy in times of systemic crisis? >> there might be something for congress to consider but the rules as they currently stand are clear that you can't force somebody to take actions against the interest of their own company for systemic reasons alone. >> so you did not cents at any time that there were ambiguities that would be better if they had been made explicit in law? >> it was always clear in our thinking and advice to mr. lewis it wasn't just an issue of the financial system but think of america at risk and he should take that into consideration when he made his decision. >> so it was the indirect benefits to the shareholders from not having the whole system
collapse that he was optimizing for. if you accept the federal recapitalization on both merrill and bank of america were probably inevitable do you think the net effect of the merger was represented the reshuffling around of the funds we would eventually have to commit or do you think it is a more complicated situation than that? >> i see the combination strengthened the company's and particular will be learned during the crisis is the investment banking model wasn't very stable, it was subject to funding problems by combining with america with the retail deposit base and was possible to solve those to some extent. >> okay. thanks again and i yield back the remainder of my time. >> i yield to the gentleman from ohio mr. jordan. >> thank you, mr. chairman. mr. bernanke, let me go back to what i think starts this pattern of pressure on behalf of the government, pattern of intimidation dealing with bank of america. i want to go back to the
october 13th initial meeting my understanding is you and mr. paulson, sheila bair and mr. geithner had the biggest banks come to washington. is that something that you and paulson decided or was that his call? how did that happen? >> my recollection is mr. paulson's decision but we all participate in the meeting. >> mr. lewis and his testimony said the meeting, he described the meeting as the four of you on one side, ceos of the bank on the other, they were given a form to sign where they had to write the amount of t.a.r.p. bailout money they felt was needed or that you suggested. the impression he left with this committee was they had a comply and fact i asked personally did anyone expressed reservations about accepting tax payer money? he said yes, one of the other ceos in fact did express
reservations nevertheless they signed that. he also indicated the entire meeting took less than one hour. is that an accurate description will to place in the meeting? >> i think the time was less than one hour, yes. >> he also said did he know what the meeting was going to be about when he came here to washington? he informed the committee that he had no idea it was going to be about signing a form being forced to accept t.a.r.p. money. is that accurate? >> i don't know. >> with me ask it this way. did you inform the nine ceos of the bank's call to washington that the meeting was calling to be about them taking t.a.r.p. money from the legislation that had just enabled that to happen and frankly had just been passed less than two weeks prior? >> i wasn't in contact with the ceos. i think the treasury was in contact with them. >> do you think mr. paulson let them know the meeting was about? >> i don't know.
>> okay. the direct election how i described the meeting and how mr. lewis described the meeting is what took place that day? nine ceos given the form saying they were going to take a certain amount of government money? >> mr. paulson strongly urged them to take capital and argued given what was going on in the world at that time, which was a global financial crisis, that it was very much in their interest and the interest of the financial system for them to do so and they signed the forms. >> again, mr. lewis felt they had to sign the conform and comply. then we'd jump for work to months to december and we have the e-mail and letter that both mr. issa and burton had brought up, the letter that mr. cuomo said to the members of congress where he said secretary paulson informed that he made the threat dealing with merrill lynch acquisition at the request of chairman bernanke. we also have the e-mail from the
richmond fed chairman, just had a talk with mr. bernanke says it is irrelevant because not credible intends to make it more clear if they played the card and need assistance management is going oregon, excuse me. and then the third 1i would point out is the e-mail from mr. and willow at the new york fed, which deals with the disclosure concern. also this is in december of last year where he says i fink i will ask merrill lynch a current estimate and he makes the statement if i get a sense merrill lynch is leaning toward a january fall when i will steer them to a leader. but i am trying to figure out is we have all this pattern here which as i asked mr. lewis when he was here if what took place at the october 13th had an impact on his decision making,
his fault process as he moves through this dealing in december with you and treasury relative to the merrill lynch acquisition do you see how a reasonable person could reach the conclusion there in fact was this pattern of pressure from the government? >> no, not if you are sufficiently informed. as i said i didn't tell mr. paulson to come as a threat. the e-mail from mr. lacher was a long conversation. it explicitly said that problems with management would be related to their needing assistance -- >> they already had assistance, you made them take it so i don't see how those -- if they invoked the mac and had to be rescued in a sunday afternoon operation at great cost and risk that would hardly be an accommodation for
the management's the@@@ @ what twin into the decision to and out -- to allow lehman brothers to fail? >> we were unable to say that within legal means. we made every attempt to do so, but we had no legal authority to inject capital at the time and no legal authority to compel mr. lewis to buy lehman brothers. therefore we had no way to prevent that. if we could have done so, we would have done so. >> you did in fact save a i g that same weekend. >> the conditions were different because they're the financial products division was part of a much larger insurance company which could provide collateral for the loan to replace the lost of liquidity from the financial
company. so it was a very different situation. >> if you had t.a.r.p. fun separates him time you would have saved lehman brothers? >> we would have given that a try. >> let me ask about the process you went through in determining to give bank of america 15 billion in october. why that number? how did you come up with that number? >> i did not develop that number. i'm sure it was related to the size of the firm and capital ratios. >> who came up with that number? >> i'm not certain, it was probably treasury. >> your mom sure who came up with the number? so the $10 billion given to merrill lynch at a subsequent point in time you don't know who came up with that number either? >> this was t.a.r.p. money and the treasury's responsibly. >> and you didn't have conversations with mr. paulson about this? >> i don't recall. >> as i look at it appears if you take the 15 billion the galt
in october, the 15 billion that merrill got, the $20 billion that was given to the b of a of january that pretty much pays for what the b of a paid for merrill to read today basically subsidize the purchase of merrill lynch to b of a? >> no, the american people made an investment which they are currently getting dividends and i expect they will be repaid. >> the obligation to inform the occ and sec bob, do you believe you have an obligation to inform them about any erratic conditions of companies you come in contact with? >> it depends what kind of company it is. this was a bank there for the most pressing communication with bank regulators the fdic and occ which we did in form and i
personally informed mr. dugan and ms. sheila bair and we had in the conference calls to discuss the issue at some detail. the sec isn't directly a supervisor of bank of america. >> it may not be a supervisor but it certainly is the way engage in their business relative to stock is of interest to the sec, is it not? >> if the question, please. >> does in the sec have a role in evaluating the bank as it relates to its investor relations? >> yes but that is the bank of america's responsibility, not ours. >> we are all one government, aren't we? >> we all have our responsibility as well. >> so you didn't believe you have a responsibility to inform the sec? >> well, we were dealing with an emergency situation and focus was on the agency's most relevant to the situation and that was banking regulators that is we focus on. >> some of these e-mails suggest
there was an active interest in not telling the sec certain things and they were finding out through other means. this is a government, we are part of the government. it's our responsibility to work together, so it appears someone was trying to hide the ball and i trying to understand why. >> there was no priority to go to the sec, but we did disclose to them what was going on and i think it's appropriate them to know what was going on. >> do you believe bankamerica had a responsibility to inform its shareholders and the american people that was going to get another injection of $20 billion from the united states government? earlier than january 20 if? >> that was bankamerica's decision and counsel. >> i was asking you. >> i'm not a lawyer. >> do you think you have a responsibility as the head of the fed to tell the american people we were going to inject
another $20 billion into the bank of america earlier than january 20 of? >> my responsibilities are set up by the stabilization act which says after the completion of the deal we must report within a week which we did. >> so you don't think you had any -- in hindsight, hindsight is always 20/20. is their anything you would do different? >> i think it was a successful transaction and stabilize markets and put the two companies back on a healthy path and protected our economy and it was a good deal for taxpayers. i think i have nothing that i regret about the whole transaction. i think it was a very successful operation over all and it achieved a public policy objective very important. >> the gentleman's time is expired. i yield to the gentleman from utah. >> thank you mr. chairman. i appreciate that and thank you for being here. a question for those recipients
of busbee t.a.r.p. to have the power to replace the board or the president? >> that's a good question. the treasury -- the treasury with its ownership has influence but it hasn't used the influence -- >> but it could. >> i suppose it could, yes. the supervisors of the federal reserve can make changes or recommend changes in management if we believe -- >> let me move on, my time is short. on december 17th meeting your meeting in person, you have been chairman or ceo lewis their experts and he might invoke the mac and then in your written testimony on page two it says, quote, responding to bank of america and discussions i express concern invoking mac
would curtail risk. going down to the point made on number two midsentence it said, because you had concerns and expressed this back. it cast doubt in the minds of the financial market participants including investors, creditors and customers about the due diligence and analysis done by the company. its capability to consummate significant acquisition and overall risk management process these and judgment of its management. how is that not a threat if you have the power and the authority to release the board of directors and fire the ceo and you are questioning their judgment and you are saying if you don't go through with this deal how is that not a threat? >> i never said anything about firing the board and management. >> but if you're questioning some of these judgment and you are in the supervisory role with the authority to let them go out is that not a threat? >> this is based on supervisory and by some reaction of the
marketplace what you have to understand is during this period the markets were extraordinarily fragile and very quickly money could pull away from a bank and put it into serious trouble very quickly. that is what happened to wachovia for example. if the markets -- >> you're believed the threat would be from the market but how could that not be a threat directly to mr. lewis and the supported directors? the questioning their judgment. >> be advised him we didn't think it was a good idea from the perspective of think of america for him to take that action however if he had taken it was his option and if he had taken it and there had been no adverse consequence we wouldn't have much basis for responding to that. >> with all due respect i am not lying back. you're in charge, you have the ability to affect the outcome, to fire them, to let them go. you're telling them if they don't come to the same conclusion as you do that they
would obviously everybody in the room, everybody in the marketplace would know their judgment was miscalculated. i think that's a threat and i think it is reasonable for the ceo and board of directors to take that as a threat. i don't see any other conclusion. we were sitting across the table, you controlled my destiny, that's one of the consequences. >> we don't control unconditionally. we have to make the case he made decisions damaging to the company and if he made that decision and the company prospered the word be no basis for any action. >> all right i'm going to move on. i want to go to page four of the testimony. it says in the second in this mid , this is from your testimony today, neither alladi or the member, any member of the federal reserve's effort directed instructed or advice to think of america to withhold from public disclosure any information related to merrill lynch and get in and e-mail of
december 22nd, e-mail number 18 we get this quote from art angelo mr. jordan referenced earlier, i will ask merrill lynch estimate of fourth quarter losses versus market expectations and when merrill lynch intends to file. if i get a sense merrill lynch is leaning towards an early january filing i will try to steer him towards a later filing. that is so inconsistent with the comment you made. do you see they are consistent or is their inconsistency? >> i didn't see that e-mail exchange until after i had written my letter but having looked at the exchange field the subsequent e-mails that in fact merrill lynch had taken the disclosure decision and mr. angelou did not attempt to make them change it so in the event he did not make any attempt to affect the disclosure. >> bup the intent is still there? >> but he did not take the action. >> do you feel in any way shape or form that you adversely
affected or threatened mr. lewis or the board of directors? >> i do not. >> thank you, mr. chairman. >> thank you. the gentleman from virginia, mr. connolly. >> welcome, chairman bernanke. mr. bernanke, i guess i come at this differently than my friend from utah. i guess i'm interested who was threatening whom. what point did you learn from mr. lewis the deal with merrill lynch, loops, had a $12 billion of a hadn't realized in doing their due diligence. >> december 17th. >> i can't hear you. >> december 17th when he called secretary paulson. >> and wind in retrospect to your knowledge did they learn they have a 12 million-dollar problem? >> they claim they haven't known any earlier than the 14th of december and that we have no direct evidence to the contrary. >> were you concerned about the lack of due diligence?
>> we did have concerns, yes. >> did you take it as a threat or do you think -- did you take it as a threat or did other senior officials perhaps discuss it as a threat in plight or otherwise that mr. lewis far from being a victim was actually manipulating the federal government that we are going to back out of this deal because the 12 billion-dollar problem we didn't catch and less in exchange we get some assurance thus t.a.r.p. money will help us cover that problem. >> i was concerned about that when i first heard about this that there might be some attempt to get government support for government subsidy on the basis after some meetings with mr. lewis my impression became that he was generally genuinely undecided about what to do and rather on certain about how to go forward, so.
>> was there any discussion at that time when you learned about it, chairman bernanke, the need to disclose this to the public and shareholders bankamerica? >> we leave the disclosures, the responsibility of the management of bank of america and their counsel and we left the decision to them completely. >> you are aware of the fact that under oath mr. lewis said there was no deliberate attempt to keep this from the public that people were tried in to work out the details when in fact subsequently this committee is in possession of an e-mail from him dated i believe december 22nd that in conversations with both of the fed and treasury strong reaction on the part of the fed officials not to disclose because or to put anything in writing because they didn't want at that point this to come out in the public because of adverse reaction.
>> i never conveyed any such a thought. >> when asked -- let me read if i made the minutes of december 22nd, an excerpt from the minutes of december 22nd board hearing. he, mr. lewis reported in addition to the previously described conversations he had spoken with mr. bernanke who stated that he had spoken to other federal regulators and we are informed of the commitment of the corporation by the fed and the treasury that all concur with the commitment of the federal regulators obviously to the voa. what is that reference to and what is the nature of the commitment he is referring to? >> as i mentioned before we did inform the treasury and fed informed the fdic and occ about the situation and about the fed and treasury commitment to working in good faith with bank of america